OBJECTIVE: To test the hypothesis that more stringent quality regulations contribute to better quality nursing home care and to assess their cost-effectiveness.DATA SOURCES/SETTING: Primary and secondary data from all states and U.S. nursing homes between 2005 and 2006.STUDY DESIGN: We estimated seven models, regressing quality measures on the Harrington Regulation Stringency Index and control variables. To account for endogeneity between regulation and quality, we used instrumental variables techniques. Quality was measured by staffing hours by type per case-mix adjusted day, hotel expenditures, and risk-adjusted decline in activities of daily living, high-risk pressure sores, and urinary incontinence.DATA COLLECTION: All states' licensing and certification offices were surveyed to obtain data about deficiencies. Secondary data included the Minimum Data Set, Medicare Cost Reports, and the Economic Freedom Index.PRINCIPAL FINDINGS: Regulatory stringency was significantly associated with better quality for four of the seven measures studied. The cost-effectiveness for the activities-of-daily-living measure was estimated at about 72,000 in 2011/ Quality Adjusted Life Year.CONCLUSIONS: Quality regulations lead to better quality in nursing homes along some dimensions, but not all. Our estimates of cost-effectiveness suggest that increased regulatory stringency is in the ballpark of other acceptable cost-effective practices.